The really scary thing for me as an American is that the longer this goes on and the more empty cities and malls the Chinese create the greater their incentive and need to collapse the United States becomes. This is because as commodity prices continue to soar and the terms of China shifts against China (this has already started) the more they will need the improve their consumers purchasing power so that they can fill all of the vacant infrastructure. This is when the need to allow the yuan to strengthen will be most apparent and there will be no choice. Purchasing power for the Chinese will surge and the U.S. and Europe will be priced out.
The Last Dance
Either China’s leadership is very smart or is very stupid (I know what ours is). I do not have a great feel for this since I have no connections there but I am pretty sure it is one or the other. Conventional wisdom at the moment tells us two things with regard to China. 1) They need us as much as we need them. 2) They are creating monster bubbles that are dangerous and have no idea what they are doing. With point #1 I completely disagree. On point #2 I had tended to agree with that and in fact may have even played a small role in making that notion part of conventional wisdom with my prior writings. More and more I am doubting #2. The alternate scenario goes like this. They refuse to allow the yuan to strengthen because they know that once they do that it will mark the real end of the dollar era. So instead they are spending like crazy on infrastructure ahead of them allowing the dollar to plunge. Then the strong yuan will be employed to purchase all the commodities they need to utilize their infrastructure and the OECD gets priced out. To those that talk about yuan devaluation, you need to be specific. Devaluation versus what? Versus commodities generally along with other currencies? I can buy that argument very easily. Versus the dollar, highly doubtful. Why? The latest data says China owns $877.5 billion in U.S. treasuries. All they have to do is start dumping and the dollar is finished as the Fed will be forced to print so many dollars it will make Mugabe blush. People need to wake up.